The devastating social costs of inequality

While the number of inequality indices and ratios is proliferating there has been less sustained attention to the social costs associated with it.

Perhaps the best response to this absence is the latest book by Princeton Professors Anne Case and Angus Deaton – Deaths of Despair – which analyses the interactions between inequality and the dysfunctional US health system; the decline of unions and the disappearance of manufacturing jobs; predatory behaviour by drug companies; corporate capture of legislative and administrative structures; and, the collapse of traditional community institutions in communities across the US.

This is not to say the inequality indices are not useful. The Galt score, named after the Ayn Rand character who inspires many US capitalists and legislators, measures the ratio between CEO pay and that of a company’s median employees’ pay. That’s, needless to say, getting rapidly worse and worse.

The most frequently used indice, the Gini index, is easy to understand but is increasingly seen to have limitations. An alternative, the Palma ratio based on the work of Gabriel Palma (a Chilean economist whose country may have given him unique insights) takes the richest 10% of the population’s share of gross national income and divides it by the poorest 40%’s share. It is also useful in providing insights which help explain, for instance in Australia, why the middle class and the elderly side with the rich against the rest on issues such as negative gearing and franking credits against the rest.

However, Case and Deaton, two leading scholars on inequality, meticulously describe the social consequences of the US system – consequences which suggest that many parts of the US share the characteristics of failed states.

In their book the phrase ‘deaths of despair’ refers to the fastest-rising US causes of death: suicides, drug overdoses and alcoholic liver disease – all self-inflicted kinds of death. Almost all the increases in deaths of despair were among those without a bachelor’s degree thus validating Michael Young’s 1958 conclusion that ‘meritocracy’ (he coined the term) leads to social catastrophe.

Case and Deaton say: “In every US state suicide mortality rates for white men aged 45 to 54 increased between 1999-2000 and 2016-17. In all but two states mortality rates from alcohol liver disease rose. And in every state drug overdose mortality rates increased.”

These problems are largely connected to a problem which epitomises the US system – the opioid endemic – in particular the FDA’s approval and the subsequent marketing of the addictive painkiller OxyContin manufactured by Purdue Pharmaceutical – founded and owned by the Sackler family whose name has been scattered over cultural institutions throughout the US.

In Australia you can only get OxyContin in hospital but in the US hundreds of millions of prescriptions were written – millions of them alone in a small town Tug Valley West Virginia with a population of just 3,000.

In most developed countries drug companies need to prove efficacy and then accept prices dictated by governments. In the US governments accept the prices demanded by the companies as a result of the increasing capture of Congress and other legislative bodies by lobbyists employed by large companies and industry associations such as the US Chamber of Commerce. This capture is becoming even more pronounced under the Trump administration as regulations on just about every protective environmental and health rules are watered down by Trump appointees recruited from the very industries they are supposed to regulate.

And the deaths of despair are occurring within a health care system which is the “most expensive in the world, and yet American health is among the worst among rich countries, something that has been true for a long time, well before the recent epidemic of deaths and the decrease in life expectancy”, Case and Deaton say.

In 2017 US expenditure on health care accounted for 17.9% of GDP compared with the next highest in the world, Switzerland. with 12.3%.

Case and Deaton point out that if the US figure was reduced to the Swiss level more than a trillion dollars would be freed up for other things. As it is US spending does not result in superior health outcomes to other countries and money is wasted on overheads, exorbitant profits on highly priced procedures, artificial barriers to entry in various health areas and world-class rent-seeking.

The Case-Deaton findings are confirmed by another recent book, Malignant, by an oncologist, Vinayak K Prasad, who analyses how US scientific, industrial and regulatory policies — as well as financial conflicts of interest for physicians — “incentivize the pursuit of marginal or unproven therapies at lofty and unsustainable prices”.

The inequality aspects of the problem are clear. For US  males without a four year degree their median earnings lost 13% of their purchasing power between 1997 and 2017 while national income per head increased 85%. Between 2010 and 2019 the US created 16 million new jobs but fewer than three million were for those without a degree and there were only 55,000 for those who had only a high school degree.

“Among America’s 350 largest firms, average CEO earnings in 2018 was $17.2 million 278 times average earnings. In 1965 the ratio was 20 to 1,” Case and Deaton say.

But it’s not just the economic inequality. The American dream was built (for whites) on solid post-WWII manufacturing jobs and strong unions. Communities had what we all saw on TV – churches, baseball clubs, good schools, moderately low divorce rates.

It wasn’t perfect. For instance two opportunities to build a better health system foundered on deeper US political problems. After the war Harry Truman tried to introduce a universal health insurance scheme but it was torpedoed by southern Democrats terrified it would be extended to African Americans. Eisenhower mused about how the military system – healthcare for all – could be introduced to the US but ferocious lobbying mainly from within his own Cabinet and some of his golf partners killed the idea.

But since then the ties that bind communities have been severed. Poor health, unemployment and learned hopelessness have contributed to dysfunctional families, men women don’t want as stable partners, more single mothers and the loss of tangible and intangible things which hold communities together.

Case and Deaton observe that the working class white communities are going through the horrors African Americans occurred decades before and ask the question as to  whether four year college graduates from less than stellar schools may be next in line in the decades ahead.

Meanwhile more and more evidence of the deterioration in the US mounts. A recent Proceedings of the National Academy of Sciences – USA paper, Rising workplace inequalities in high-income  in high-income countries by a large cast of authors compared inequality in 14 countries (including Australia and the US) found that “countries vary a great deal in their levels and trends in earnings inequality but that the between-workplace share of wage inequality is growing in almost all countries examined and is in now country declining…..Our findings suggest inequalities are lower and grew less strongly with stronger institutional employment protections and rose faster when these labor market protections weakened.”

This is a finding Scott Morrison is unlikely to take into account when he finally announces his ‘snap back’ policies of ‘reform’.

The blog’s friend John Spitzer brought the PNAS paper and the Malignant book to its attention.